Nancy Oliva hadn't paid much attention to her insurance plan's requirement
that she pay half the cost of prescription drugs. Then the cashier at
ShopRite told her she owed $636 for seven pills.

Oliva, 60 years old,
was diagnosed with a rare type of brain tumor earlier this year. She was
prescribed a new drug to be taken in combination with radiation. The retail
price of a one-week supply of the pill, called Temodar, is $1,272.

Oliva, who earns
about $40,000 a year managing a clothing store in Long Beach Island, N.J.,
pulled out her American Express card that day in September and paid, unsure
where she was going to find the money for the next week's supply. Fortunately,
the nurse at her doctor's office found help for her from a charity, Patient
Services Inc., which picked up her drug co -payments -- $3,800 for a six-week
course of treatment.

The twist: The money
for her co-payments came from Schering-Plough Corp., the drug's maker.

To cope with rising
medical costs, insurers are requiring patients to pay higher premiums
and co-payments for drugs. While poor, uninsured patients often can get
expensive medicine free from drug companies, people with insurance increasingly
are finding it difficult to afford these drugs.

In response, drug
companies are giving money to charities that are specifically set up to
help patients pay such costs.

Under this support
system, drug-company money keeps patients insured -- and keeps insurers
paying for the high-priced medicine.

"It's a win-win
situation," said Dana Kuhn, co-founder and president of Patient Services,
a Midlothian, Va., charity that solicits money from drug companies. "Patients
are helped, and companies are helped. They make a small contribution to
help the patient and get much more money back when the insurer pays for
the drug."

Drug companies also
often take a tax deduction for their donation.

But critics contend
the arrangements unfairly let drug companies protect the prices of their
most-expensive medicines.

"I don't want
to discount the legitimate help they provide to people in need,"
said Scott Howell, an internist who serves as vice president of pharmacy
affairs at Highmark Inc., a Blue Cross and Blue Shield company in Pittsburgh.
"But it's really a clumsy way for manufacturers to game the system
so they can continue their high pricing."

The efforts, critics
said, are a short-term fix that doesn't address the underlying problem:
the soaring cost of ultra-expensive drugs. They argue that by paying patients'
premiums or co-payments, drug companies are shifting most of the price
of these medicines to the patients' insurers, who in turn spread the cost
onto the other people they cover.

"This is not
a sustainable level of spending," said Alan Garber, chairman of the
Medicare Coverage Advisory Committee and director of the Center for Health
Policy at Stanford University. "The idea of making drugs available
to people who can't afford it is very appealing, but the net effect is
for the drug company to appropriate most of the gain."

Drug companies say
the high prices of new drugs allow them to recoup development costs and
invest in research, as well as provide return for their shareholders.
Donating to groups that make insurance payments helps people get their
medicine.

A Schering-Plough
spokeswoman said the company contributes to Kuhn's charity "as a
resource for patients." She declined to say how much Schering-Plough
donates to such programs.

Patients are grateful
for the help.

"Whoever thought
a week's worth of pills could cost $1,200?" said Oliva, who is now
taking another round of Temodar. "But I'm so pleasantly surprised
that someone is trying to help me stay alive, and it's the drug company,
of all people."

The need for financial-assistance
programs is growing. The biotechnology revolution has created hundreds
of drugs for chronic, life-threatening illnesses.

But many are coming
to market at high prices. In May, the U.S. Food and Drug Administration
approved a drug for a rare genetic disease, called MPS-VI, made by California-based
BioMarin Pharmaceutical Inc., which costs an average of $300,000 a year.
Other new drugs cost less, but are still pricey, such as cancer drugs
Avastin, at $50,000 a year, and Erbitux at nearly $120,000 a year.

Unlike traditional
medicines that are made by mixing chemicals, many newer drugs are proteins
grown in cells, which is a complex, expensive process. Companies say costly
manufacturing also leads to higher prices. On the other hand, the gross
profit margins on some of these drugs can exceed 90 percent.

While Patient Services developed the concept of soliciting drug-company
money to pay insurance premiums, the National Organization for Rare Disorders,
a Connecticut nonprofit, recently began performing the same kind of middleman
role.

"Everybody knows
what has to happen -- that these prices have to come down," said
Abbey Meyers, the group's president.

For now, she said,
"we're trying to work with drug companies in a way that's acceptable
to them and that also helps patients. We're doing the best we can."

Kuhn, 52, who suffers
from hemophilia, co-founded Patient Services, also known as PSI, in 1989
while working as a counselor at a Richmond, Va., hospital. He saw hemophiliacs
struggling to pay rising premiums to maintain insurance coverage for Factor
VIII, the blood-clotting protein they need to stay alive. The drug today
costs about $100,000 a year.

Kuhn approached companies
making the drug for a donation to help patients pay premiums.

"Our argument
was, 'If you donate $50,000, we can keep these people insured and provide
revenue for you,' " he said.

Baxter and Armour
Pharmaceutical Co., two of several companies that made the drug, each
contributed $50,000 the first year. The program has grown steadily, now
assisting people with 19 different chronic illnesses.

Last year, Patient
Services raised $22 million, helping nearly 20,000 patients pay premiums
and co-payments. About $17 million of that came from 13 drug companies.

Third-party charities
struggle to maintain a working balance with corporate donors.

Maria Hardin, vice
president of patient services at the National Organization of Rare Disorders,
said companies routinely press the group to give out more patient information
than it legally can provide.

"There's a lot
of whining going on with them asking, 'What percentage of the fund is
taking care of our patients?' We can't provide that information,"
she said.

Kuhn's charity is
growing so much that it plans to build a $1.7 million, 15,000-square-foot
building. One reason he expects demand for assistance to rise is that
next year, Medicare will start a program to help the elderly afford drugs.
Currently, Medicare doesn't pay for most prescription drugs.

But the new Medicare
program is structured so that some patients on expensive drugs will still
have to come up with thousands of dollars to pay out-of-pocket costs.

Long-term support
from the charities is uncertain. Kuhn said patients are guaranteed assistance
for two years. After that, it is hoped that they can be weaned off the
program, by finding a different insurance plan or a new job with better
benefits.